SYDNEY, June 5 (Reuters) - Australia’s Qantas Airways warned of its first annual net loss since it was privatised in 1995, blaming deep losses at its international operations, weak travel demand and soaring fuel costs, sending its shares down by a fifth to a record low.

The forecast comes two weeks after Qantas unveiled a plan to separate its bleeding international business from its profitable domestic unit, and follows a bruising 12 months wrangling with unions that led to the grounding of its fleet for nearly two days last year.

Chief Executive Alan Joyce, whose turnaround plan and handling of the unions has won shareholder plaudits, said the past few weeks had been particularly harsh, forcing the airline to warn investors.

“A very disappointing forecast. It just highlights the size of losses and problems with the international business and justifies Joyce’s move to split the group,” said David Liu, Head of research at ATI Asset Management, which owns Qantas shares.

“Having said that, I take a lot of positives from the initiatives to cut costs, capex. It shows the management understands the macro economic environment and is doing everything it can to mitigate it.”

Joyce said Qantas would post a net loss for 2011/12. He forecast underlying profit before tax would slide as much as 90 percent to A$50 million ($48.6 million) to A$100 million, while the airline will incur A$380 million in restructuring costs - half the statutory level.

The latest underlying profit forecast compared with A$522 million a year ago and was well below analysts’ expectations of A$285 million.

The Qantas plan to separate its international and domestic divisions has sparked speculation a foreign carrier could buy a stake in the airline, with a recent Deutsche Bank research note suggesting Emirates could invest in the domestic arm. Joyce has told media that reports of Emirates taking an equity stake are wrong.

Separately, Abu Dhabi’s flagship carrier Etihad Airways said it had bought 4 percent of Qantas’ domestic rival Virgin Australia Holdings and aimed to build its stake to 10 percent. Etihad has a strategic alliance with Virgin Australia and the Gulf carrier’s chief executive James Hogan ruled out any move to buy a stake in Qantas.

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The airline’s profit warning underlines the global aviation sector’s struggles as high oil prices and sagging demand due to the European economic crisis take their toll.

The International Air Transport Association has downgraded its forecast for airline profits in 2012 to $3 billion from $3.5 billion, and has said sharp rise in oil prices could lead to losses as high as $5.3 billion for the sector.

Qantas said its international business was set to more than double its loss in earnings before interest and tax (EBIT) to over A$450 million in the year to June 2012, compared with a A$216 million loss a year ago. Earnings for its domestic unit and low cost offshoot JetStar were seen at over A$600 million.

“We are attacking costs and allocating aircraft and capital efficiently. Over A$300 million in annual benefits have been identified from the changes we are making,” said Joyce, who aims to return the international business to profit by 2014.

TURNAROUND PLAN

Irish-born Joyce, 45, took over as Qantas CEO in 2008 after stints at its low-cost offshoot JetStar and the now defunct Ansett Australia. He was named the nation’s most influential business leader by the Australian newspaper earlier this year after his battle with unions.

Joyce has embarked on a five-year turnaround plan and announced 1,000 job cuts. The world’s second-oldest airline is shrinking its engineering and maintenance centres and cutting A$900 million in capital expenditure to protect it from economic turmoil and safeguard its investment grade rating.

Qantas, which has retired most of its old aircraft, said it had a cash balance of more than A$3 billion, an undrawn standby facility of A$300 million, and the flexibility to further cut capital investment if the need arises.

Group underlying fuel costs were seen reaching A$4.4 billion in the year, up about $700 million on last year.

Last month, the airline said the domestic and international businesses will have their own CEOs and financial results though the group will remain a single entity.

A spin-off or sale of the international unit is viewed as unlikely by analysts, given its key role as a passenger feeder to the domestic operations. A sale or a significant stake sale in the business would also need changes to legislation which is designed to protect Qantas’ position as an Australian airline.